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ETHICS IN ACCOUNTING AND FINANCE

Presented by Pratibha Chaudhari Dhara Suvagiya Nikita Pereira

. • The major ethical issues occur in accounting and finance are reporting false income. allowing or taking questionable deductions. engaging in frauds etc.Introduction • Accounting and finance provides fair and accurate reporting of the financial position of a business. falsifying documents. illegally evading income taxes.

Types of fraud • • • • • Fictitious revenue-revenues not actually earned Fraudulent Timing differences Concealed liabilities and expenses Fraudulent disclosures or Omissions Fraudulent asset valuation-false statement of the inventory available .

the study of moral values and judgments as they apply to accountancy. • Accounting ethics were first introduced by Luca Pacioli. and later expanded by government groups.Accounting ethics • Accounting ethics is primarily a field of applied ethics. • It is an example of professional ethics. and independent companies. . professional organizations.

• These collapses have resulted in a widespread disregard for the reputation of the accounting profession. various accounting organizations and governments have developed regulations and remedies for improved ethics among the accounting profession.• Due to the diverse range of accounting services and recent corporate collapses. attention has been drawn to ethical standards accepted within the accounting profession. . • To combat the criticism and prevent fraudulent accounting.

is largely rule-based.School of thought • The International Financial Reporting Standards (IFRS) are standards and interpretations developed by the International Accounting Standards Board. and Hong Kong. which are principle-based. • IFRS are used by over 115 countries including the European Union. . Australia. • The United States Generally Accepted Accounting Principles (GAAP). the standard framework of guidelines for financial accounting.

• The principles-based approach to monitoring requires more professional judgment than the rules-based approach. .• Critics have stated that the rules-based GAAP is partly responsible for the number of scandals that the United States has suffered.

. the Act put a limit on the fee which a firm can receive from one client as a percentage of their total fees. • Sarbanes-Oxley limits the level of work which can be carried out by accounting firms. developed by the United States. • In addition.Regulations • New regulations in response to the scandals include the Corporate Law Economic Reform Program Act 2004 in Australia as well as the Sarbanes-Oxley Act of 2002.

in the hope that they do not need to act unethically to keep a steady income. • The act also protects whistleblowers and requires senior management in public companies to sign off on the accuracy of its company's accounting records.• This ensures that companies are not wholly reliant on one firm for its income. .

systems and policies • Whether business activities comply with the standards • To identify the way in which it does business .Ethical audit Main purpose of ethical audit is to check the actions of a firm. The main objectives of ethical audit are: • Assess the business structure and procedures.

• Evaluate whether management has relevant information in running the business • To help business undergo major alterations like restructuring • To identify the training necessary for the employees • Establishing ethical conduct of business to attract valuable investments • Establish code of conduct • Helps the shareholders to evaluate the performance of the directors and vice versa .

Steps to be taken by management • Determining the key elements of the business like the objectives and see how they are defined and measured • Making sure that the funds are allocated to different activities on the basis of their importance • Frame rules that have a positive effect on business activities .